Foreign Relations of the United States, 1964–1968, Volume
XXXI, South and Central America; Mexico

506. Information Memorandum From the Assistant Secretary of State for
Inter-American Affairs (Oliver) to Secretary of State Rusk1

Washington, September 20,
1968.

SUBJECT

Peru—Delicate Political Situation Threatens Upset of Recent
Economic Advances and Possibly Constitutional Government

The decisive action of the Hercelles Cabinet to remedy the deteriorating
economic situation in Peru and to solve the long-standing IPC problem has brought about a reaction
from the right and the left which now threatens the stability of the
Cabinet, its economic recovery programs, and quite possibly the
constitutional process.

Background

After a steadily deteriorating economic situation had continued for ten
months, the Peruvian Congress granted the executive branch sixty days of
extraordinary powers to cope with the situation. The Cabinet of Premier
Oswaldo Hercelles acted
quickly to remedy the economic deterioration. New taxes such as a large
gasoline tax increase, however, were bound to elicit adverse
reaction.

The package of measures taken by the Finance Minister, Manuel Ullos, re-established confidence
on the part of the IMF, foreign banks,
and foreign investors, and they are cooperating with the Government on
stand-by arrangements and foreign debt rescheduling.

The Government also arrived at a settlement of the long-standing dispute
with the American-owned International Petroleum Company. A complicated
arrangement was devised in which the Company turned over the disputed
oil lands in return for an exoneration from all alleged past debts and
the right to continue its other operations in Peru.

The good effect of the Peruvian Government’s actions of the past three
months and its capacity to continue its recovery program are now in
jeopardy because of domestic political considerations.

In addition to the public reaction against the new taxes, the IPC settlement is under strong attack.
Die-hard elements on the extreme right and the extreme left have joined
together to attack the solution as being unfavorable to Peru and a
“give-away.” The Peruvian military [Page 1053]has been reported as being quite concerned about the
reaction to the IPC solution and there
are even rumors of certain elements considering this as a pretext for a
coup.

Present Situation

At the present moment, according to our Embassy, [less
than 1 line of source text not declassified], and even the
Peruvian Embassy here, the situation is delicate. President Belaunde is in his sixth and final
year, with elections scheduled for June, 1969. The apparent probable
winners of next year’s elections, APRA,
hold one of the keys in the situation. Its majority congressional bloc
supported the President in granting extraordinary powers and on settling
the IPC dispute. Nevertheless, APRA does not wish to be tied to the
program if it becomes unpopular, especially with regard to taxes or the
oil dispute. More importantly, it desperately wants elections to be held
and realizes it must give Belaunde at least enough support to ward off coup-minded
elements. However, influential elements in the military still fear
APRA, and would prefer a coup to a
democratic Aprista victory.

The Peruvian military thus holds another key in the situation. They can,
of course, intervene at a moment’s notice and often have in the past.
During the last year of crises, however, despite the numerous
opportunities at hand, the military has refrained from taking action. As
the presidential elections draw closer, this crisis is a greater danger
to constitutional government.

President Belaunde is the third
key element. He is a skilled politician, and on many occasions has
fashioned solutions from apparently irreconcilable political problems.
His will to finish his term in office and preside over an orderly and
democratic transition is an important element in the equation.

Since the President is not directly threatened by a Cabinet crisis, one
of the safety valves in moments of extreme stress is the resignation of
the Cabinet. In the past year, there have been four Cabinets in Peru.
The present Cabinet is by far the strongest Peru has had in years. Its
demise would be a body blow to the economic recuperation of the country
and would inflict a staggering set-back to confidence both within and
outside of Peru. Further, the fact is there are practically no competent
individuals left who would accept Cabinet positions in this lame duck
Government. Therefore, the military might feel compelled to take over or
to install military officers in key civilian ministeries.

The United States is largely on the sidelines in this situation. Our aid
involvement has varied from minimal to naught (in 1968) and our
relationship has been beset by serious and emotional problems—IPC, the Mirage purchase, tuna boat
seizures, etc. Unfortunately, at almost any moment these U.S.-Peruvian
bilateral issues can create problems of [Page 1054]great importance in Peruvian politics. This is
especially true when the problem involves possible application of
legislation such as the Symington, Conte–Long, Hickenlooper, Pelly and Ship Loan
Recall Amendments.

We expect Mr. Hercelles (who holds both Prime and Foreign Minister
portfolios) to attend the UNGA—probably
after October 5—if the political situation is sufficiently calm. We will
provide you with current briefing material when an appointment with you
is arranged.

Source: National Archives and
Records Administration, RG 59, ARA
Files, 1967–69: Lot 74 D 467, September 1968—CTO Chron.
Confidential. Drafted by Shumate on September 20 and cleared by Vaky and Stedman. The memorandum is an
uninitialed copy.↩